Intel and TSMC: Strange Chip-Fellows

ByDon Clark

By Don Clark

Intel Corp. and Taiwan Semiconductor Manufacturing Co., masters of two very different styles of chip-making, have apparently found ways to help each other.

The companies on Monday plan to announce what they describe as a “strategic” collaboration, which includes allowing TSMC to make chips that combine the circuitry of Intel’s popular Atom microprocessor with circuitry that handles other chores, according to one person familiar with the situation. Such multi-function chips are commonplace in cellphones and some consumer electronics devices, markets that Intel has been targeting lately to diversify from the computer industry.

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The companies will work together in other ways, too, another person familiar with the announcement added.

Such arrangements would be something of a departure for Intel, which is the largest company that both designs and manufactures chips. Intel doesn’t usually allow its microprocessor technology to be manufactured elsewhere. A deal would also be a positive endorsement for TSMC, the best-known among the build-to-order chip manufacturers known as foundries.

But this does not appear to be the classic kind of “second-source” arrangement that the chip industry has known for decades. In such deals, a company like Intel might contract with another manufacturer to make identical products to those rolling out of Intel’s own factories–in some cases, because customers demand multiple sources, or because the chip designer doesn’t have enough of the right kind of production capacity available. Indeed, Intel has turned to TSMC in the past to make elements of its chip sets, which are products that connect a microprocessor to the rest of a system.

Intel is awash in production capacity right now, though, because of the slump in the computer industry. It should have no trouble meeting demand for the existing versions of Atom, which rolled off its production lines last year and are being widely used in low-end laptops called netbooks.

That is not the only mission of Atom, however. The chip–especially as Intel comes out with versions that draw lower power–is also expected to help Intel move into products that Intel calls MIDs, or mobile Internet devices. Making that job a reality is the job of Anand Chandrasekher, the senior vice president in charge of Intel’s ultra mobility group, who is speaking at a press conference with TSMC at Intel’s headquarters in Santa Clara, Calif.

One hurdle for Atom is that it is likely to competing with cellphone-style chips, which commonly are designed to save space and money by combining microprocessors with functions such as circuitry for tapping into third-generation cellular networks. TSMC has manufactured many such “systems on a chip,” or SOCs, for cellphones on behalf of designers such as Qualcomm, Texas Instruments Inc. and Broadcom. So TSMC would be a logical partner to help produce multi-function chips for the MID market.

Meanwhile, Intel also has discussed the idea of manufacturing custom SOCs to the specifications of companies that make consumer-electronics products. Paul Otellini, Intel’s chief executive, mentioned that very possibility at an investor conference last week. “I think it’s likely you’ll see us say yes to those kinds of deals,” he said.

The TSMC relationship, while turning two different kinds of chip makers into partners, could have other somewhat-ironic effects. For one thing, it’s possible that Intel microprocessor technology could roll out of the same factories that produce graphics chips designed by rival Advanced Micro Devices.

And the Atom circuitry, in theory at least, could end up combined with communications circuitry or technology from other competitors. “It could be a bit like a shotgun wedding,” said Roger Kay, an analyst at Endpoint Technologies Associates.

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